-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GevfrpU8tTqnOQ2QkIqgncHDxPqF3tQVQKDw6rdc/HyM4edC1pXUR+CvKSFunIbL nEmFxiq9VA7UaQGmVUpHcA== 0000950136-06-004076.txt : 20060519 0000950136-06-004076.hdr.sgml : 20060519 20060519153651 ACCESSION NUMBER: 0000950136-06-004076 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20060519 DATE AS OF CHANGE: 20060519 GROUP MEMBERS: JOHN D. ZIEGELMAN GROUP MEMBERS: MAGNETAR FINANCIAL LLC GROUP MEMBERS: NEW WORLD OPPORTUNITY PARTNERS II, LLC GROUP MEMBERS: NWFP I LLC GROUP MEMBERS: ZIEGELMAN PARTNERS, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SUNTERRA CORP CENTRAL INDEX KEY: 0001016577 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 954582157 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-47333 FILM NUMBER: 06855247 BUSINESS ADDRESS: STREET 1: 3865 W CHEYENNE AVENUE STREET 2: BUILDING NO. 5 CITY: NORTH LAS VEGAS STATE: NV ZIP: 89032 BUSINESS PHONE: 702-804-8600 MAIL ADDRESS: STREET 1: 3865 W CHEYENNE AVENUE STREET 2: BUILDING NO. 5 CITY: NORTH LAS VEGAS STATE: NV ZIP: 89032 FORMER COMPANY: FORMER CONFORMED NAME: SIGNATURE RESORTS INC DATE OF NAME CHANGE: 19980722 FORMER COMPANY: FORMER CONFORMED NAME: KGK RESORTS INC DATE OF NAME CHANGE: 19960611 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CD CAPITAL MANAGEMENT LLC CENTRAL INDEX KEY: 0001271084 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 2 N RIVERSIDE PLAZA SUITE 600 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124663239 MAIL ADDRESS: STREET 1: 2 N RIVERSIDE PLAZA SUITE 600 CITY: CHICAGO STATE: IL ZIP: 60606 SC 13D/A 1 file001.htm AMENDMENT NO. 5 TO SCHEDULE 13D

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

SCHEDULE 13D/A

Under the Securities Exchange Act of 1934
(Amendment No. 5)*


SUNTERRA CORPORATION
(Name of Issuer)


COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)


86787D 20 8
(CUSIP Number of Class of Securities)


CD Capital Management LLC 2 North Riverside Plaza, Suite 720 Chicago, Illinois 60606 Attention: John Ziegelman Telephone: (312) 466-3226
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

with copies to:


Greenberg Traurig, LLP The Metlife Building 200 Park Avenue New York, NY 10166 Attention: Clifford E. Neimeth, Esq. Telephone: (212) 801-9200				Greenberg Traurig, LLP 77 West Wacker Drive Chicago, Illinois 60601 Attention: Peter H. Lieberman, Esq. Telephone: (312) 456-8400


May 19, 2006
(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a Statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D and is filing this Schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7(b) for other parties to whom copies are to be sent.

*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be ‘‘filed’’ for the purpose of Section 18 of the Securities Exchange Act of 1934 (‘‘Act’’) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

(PAGE 1 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 2 of 10 Pages


1.	NAME OF REPORTING PERSON: CD Capital Management LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
31-1816593


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

999,206


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

5.1% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


	IA,	OO


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 2 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 3 of 10 Pages


1.	NAME OF REPORTING PERSON: John D. Ziegelman

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

United States


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

1,024,206


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

5.2% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 3 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 4 of 10 Pages


1.	NAME OF REPORTING PERSON: Magnetar Financial LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
04-3818748


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

782,000


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

4.0% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 4 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 5 of 10 Pages


1.	NAME OF REPORTING PERSON: New World Opportunity Partners II, LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
42-1681457


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

290,122


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

1.5% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 5 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 6 of 10 Pages


1.	NAME OF REPORTING PERSON: NWFP I LLC

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
20-3708673


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

171,312


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

0.9% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 6 OF 10 PAGES)


CUSIP No. 86787D 20 8	SCHEDULE 13D/A	Page 7 of 10 Pages


1.	NAME OF REPORTING PERSON: Ziegelman Partners, L.P.

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

36-4337005


2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP

(a)

(b)


3.	SEC USE ONLY


4.	SOURCE OF FUNDS


5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)


6.	CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware


11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

25,000


12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES


13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

0.1% OF COMMON STOCK⁽¹⁾


14.	TYPE OF REPORTING PERSON


(1)	Based on 19,719,896 shares of Common Stock of Sunterra Corporation outstanding on February 6, 2006.

(PAGE 7 OF 10 PAGES)

SCHEDULE 13D/A

CD Capital Management LLC, a Delaware limited liability company (‘‘CD Capital’’), John D. Ziegelman (‘‘Mr. Ziegelman’’), Magnetar Financial LLC, a Delaware limited liability company (‘‘Magnetar’’), New World Opportunity Partners II, LLC, a Delaware limited liability company (‘‘NWOP II’’), NWFP I LLC, a Delaware limited liability company (‘‘NWFP’’), and Ziegelman Partners, L.P., a Delaware limited partnership (‘‘ZP-LP’’ and collectively with CD Capital, Mr. Ziegelman, Magnetar, NWOP II, and NWFP, the ‘‘Reporting Persons’’) are jointly filing this Amendment No. 5 relating to the Statement of Beneficial Ownership on Schedule 13D, as filed with the Securities and Exchange Commission (the ‘‘Commission’’) on December 19, 2005, as amended by Amendment No. 1 thereto filed with the Commission on January 17, 2006, Amendment No. 2 thereto filed with the Commission on February 21, 2006, Amendment No. 3 thereto filed with the Commission on April 24, 2006, and Amendment No. 4 thereto filed with the Commission on April 28, 2006 (collectively, the ‘‘Schedule 13D’’).

The purpose of this Amendment No. 5 is to report the contents of a letter addressing certain concerns of the Reporting Persons regarding the Issuer. Except as set forth below, all Items of the Schedule 13D remain unchanged. All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Schedule 13D.

ITEM 4. PURPOSE OF TRANSACTION

Item 4 of the Schedule 13D is hereby amended to add the following information:

On May 19, 2006, Mr. Ziegelman of CD Capital delivered to Mr. David Gubbay and Mr. Nicholas J. Benson, Chairman and Chief Executive Officer, respectively, of the Issuer, a letter to the Board of Directors of the Issuer, dated May 19, 2006 (the ‘‘May Letter’’), a copy of which is attached hereto as Exhibit 99.15 and which is incorporated by reference herein. In the May Letter, Mr. Ziegelman expressed his continued disappointment with the Issuer’s management, in particular with respect to the Issuer’s European operations. In light of the concerns expressed in the May Letter with respect to the Issuer’s European operations and its current stock price, Mr. Ziegelman, on behalf of the Reporting Persons, has demanded in the May Letter that the Issuer’s Board of Directors take the following actions:


	(i)	Immediately hire an investment bank to sell the European operations, and to assess the Issuer’s strategic alternatives including, but not limited to, retaining and growing the North American business or selling the Issuer (after its general and administrative expenses have been appropriately reduced);


	(ii)	Immediately implement a stock repurchase program, utilizing borrowings, and apply the proceeds of the sale of the European operations to such repurchase program; and


	(iii)	Reduce the Issuer's overall general and administrative expenses to be consistent with the Issuer's competitors.

The Reporting Persons expressly reserve the right to propose other matters identified in and related to the May Letter, and/or to propose or take actions intended to effect the demands set forth in the May Letter. In addition, the Reporting Persons expressly reserve the right to propose other matters, including without limitation, matters relating to the other issues discussed in the Issues Letter delivered to the Issuer on April 26, 2006 and previously disclosed in this Item 4 to Schedule 13D. CD Capital continues to be willing to enter into a mutually acceptable confidentiality letter to be negotiated with the Issuer, as previously disclosed in this Item 4 to Schedule 13D, pursuant to which CD Capital would be provided with information that could affect the matters addressed in the Issues Letter and in the May Letter. CD Capital has been advised by the Issuer, however, that the Issuer is not willing to enter into a confidentiality agreement with CD Capital until such time as the Audit and Compliance Committee of the Issuer’s Board of Directors concludes its investigation into the allegations with respect to the Issuer’s Spanish operations which the Issuer has recently disclosed. The Reporting Persons expressly hereby reaffirm the reservation of all rights, options and possible future actions heretofore disclosed by them in this Item 4 to Schedule 13D.

(PAGE 8 OF 10 PAGES)

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS

Item 7 is hereby amended to add the following:


Exhibit 99.15				Letter dated May 19, 2006 from Mr. Ziegelman to the Board of Directors of the Issuer.

(PAGE 9 OF 10 PAGES)

SIGNATURE

After reasonable inquiry and to the best of each of the undersigned’s knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct.

DATED: May 19, 2006

CD CAPITAL MANAGEMENT LLC

By: ZP II LP, its Managing Member

By: C3 Management Inc., its General Partner

BY: /s/ John D. Ziegelman

Name: John D. Ziegelman
Title: President

MAGNETAR FINANCIAL LLC

By: /s/ Paul Smith

Name: Paul Smith
Title: General Counsel

NEW WORLD OPPORTUNITY
PARTNERS II, LLC

By: /s/ Michael Brodsky

Name: Michael Brodsky
Title: Managing Member

NWFP I LLC

By: /s/ Michael Brodsky

Name: Michael Brodsky
Title: Manager

ZIEGELMAN PARTNERS, L.P.

By: /s/ John D. Ziegelman

Name: John D. Ziegelman
Title: Managing Agent

/s/ John D. Ziegelman

JOHN D. ZIEGELMAN

(PAGE 10 OF 10 PAGES)

EXHIBIT INDEX


Exhibit 99.15				Letter dated May 19, 2006 from Mr. Ziegelman to the Board of Directors of the Issuer.

GRAPHIC 2 ebox.gif GRAPHIC begin 644 ebox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(1A(\0RVO= - -'G1J!CDQU+'FE!0`.S\_ ` end GRAPHIC 3 spacer.gif GRAPHIC begin 644 spacer.gif K1TE&.#EA`0`!`(```````````"'Y!`$`````+``````!``$```("1`$`.S\_ ` end GRAPHIC 4 xbox.gif GRAPHIC begin 644 xbox.gif M1TE&.#EA"@`*`(```````/___R'Y!```````+``````*``H```(6A(\0RVNA 2F'K0N0@QS3+Z6TE EX-99.15 5 file002.htm LETTER DATED MAY 19

EXHIBIT 99.15

[CD CAPITAL MANAGEMENT, LLC LETTERHEAD OMITTED]

May 19, 2006

Mr. Nicholas J. Benson
Mr. David Gubbay
Mr. Olof S. Nelson
Mr. James H Dickerson, Jr.
Mr. James A. Weissenborn
Mr. Charles F. Willes

Attention: Nicholas Benson
Chief Executive Officer
Sunterra Corporation
3865 W. Cheyenne Ave.
North Las Vegas, Nevada 89032

Gentlemen:

I am writing to you to express my profound disappointment with the Sunterra management and the Board for their lack of leadership and lack of taking any decisive action to stem the tidal wave of value destruction that has occurred over the past year. I have attached for your review, our Value Destruction/Creation Analysis. Our methodology was to analyze Sunterra’s stock price movement one day before and two days after each of the Company’s Form 8-K filings. The results show, on a cumulative basis over the past 12 months, Sunterra’s management destroyed $23.3 million of shareholder value after reporting a material event. If you do the same calculation excluding earnings announcements, the value destruction increases to $53.2 million. I draw your particular attention to the fact that, when the topic covered in the 8-K involved Europe, the Company destroyed more than $68 million of market value. Conversely, when the subject involved North American operations, the Company actually created approximately $29 million of market value. In the final analysis, the market believes that management's missteps in Europe outweigh its successes in North America. The best evidence of the aforesaid is the fact that Sunterra’s equity market value has decreased by $80.35 million in the last 12 months. To put this management failure into perspective, Sunterra’s stock price lost approximately 28.2% in value while the Russell 2000 Index appreciated approximately 17.7% during the same period.

Both prior to my initial meeting with Mr. Benson on November 3, 2005 and subsequent to that date, I have expressed my views regarding the substantial latent value of Sunterra's stock price. Since filing our 13D on December 19, 2005, I have been clear that the Board needs to address the valuation issues. In each case, I have been rejected at every turn. In particular, over the past several months, we have raised a number of critical issues and asked for the Board and management to: (1) critically examine and, where necessary and appropriate, cut operating expenses, (2) explain Europe — particularly so judgments could be made as to whether it was a strategic asset, (3) consider hiring an investment banker to analyze strategic alternatives, and (4) broaden the talent of the Board. The recurring message from Sunterra, by actions not words, has been utter rejection of the first three points and only lip service to the fourth. Your latest excuse for not working collaboratively and cooperatively with your largest shareholder to unlock value has been that the Board determined to cease discussions with us pending the ‘‘Independent Counsel’s’’ conclusion of its investigation. In light of the two most recent 8-K disclosures, while we understand your predicament, we now believe that immediate action is required to stop the value destruction and the onset of management/Board moves to again instill confidence in the market and ultimately build value. Unlocking shareholder value is precisely why we took up the mantle on December 19, 2005 by filing our original Schedule 13D, and the ensuing amendments, and in the process asking the Board some thoughtful questions. The Board's silence to date is deafening.

Charles Dickens’ A Tale of Two Cities seems to be apropos to the current situation with Sunterra. It is ‘‘the best of times’’ because, in our opinion, the Company’s management has done a reasonable job executing and riding the strong wave currently impacting the North American timeshare market. It is ‘‘the worst of times’’ because, in our opinion, this same management team has completely and utterly failed with respect to executing and managing the market/assets in Europe. These statements are clearly supported by the data attached hereto. The net result has been an unacceptable destruction of value that must come to an end and immediately be reversed!

This is not a new issue for us. As you will recall, CD Capital Management went on record during the 3^rd Quarter (2005) conference call on August 9, 2005 (period ending June 30, 2005) questioning management about its strategy in Europe. Specifically, I asked Mr. Benson (reprinted with permission of Thomson StreetEvents^SM),

‘‘...STRATEGICALLY FOR EUROPE, ARE YOU GUYS LOOKING AT OTHER STRATEGIES THAT WOULD INCLUDE PERHAPS SELLING EUROPE, SELLING PIECES OF EUROPE, OR SOME OTHER WAY TO REALIZE VALUE THERE?’’

Mr. Benson’s response was,

‘‘...I THINK AS A RESPONSIBLE MANAGEMENT TEAM, AND OUR BOARD IS A RESPONSIBLE BOARD, WE CONSIDER AND WILL KEEP UNDER REVIEW ALL OF THE OPTIONS OPEN TO US. AT THE MOMENT WE HAVE REVIEWED ALL THOSE OPTIONS. AND I'LL ONLY REITERATE THE COMMENTS THAT I'VE MADE BEFORE, EUROPE IS A KEY STRATEGIC ASSET, AND IT HAS OUR FULL SUPPORT. WE INTEND TO CONTINUE TO GROW THE BUSINESS. I DON'T THINK YOU WOULD HOLD US RESPONSIBLY WHEN WE'D GONE AND SPENT SOME MILLIONS OF DOLLARS BUYING INVENTORY FOR EUROPE AND THEN SELL IT’’.

Mr. Benson went on to say,

‘‘SO EUROPE IS KEY TO OUR BUSINESS. IT’S A UNIQUE ASSET IN THAT NONE OF OUR COMPETITION HAVE A EUROPEAN OPERATION LIKE OURS. WE THINK THE OPPORTUNITY EXISTS TO REFOCUS IT, WHICH IS WHAT WE’RE ARE DOING, AND GET IT GROWING AGAIN STRONGLY...’’

As we look back on this in light of the Company's recent disclosure regarding Europe, it is clear to us that had Mr. Benson actually considered my question thoughtfully, he may have tried to assess the current value of the European assets to a local owner/manager versus that of a corporate owner with no personal stake. Instead, he chose to ignore the operational risks and cling to his belief that Europe is a strategic asset in the absence of any data that supports such a belief. Moreover, the inefficiency of managing both the Company and the European operations by flying back and forth between London and Las Vegas would certainly have been very obvious. And, had the Board actually considered the value of Europe as a strategic asset versus its fair value to a local owner/manager, they may have concluded its fair value to be in the range of 1.0x to 1.5x (trailing 12 month) total revenues, or between $80-$150 million. A value range that today represents between 50% and 75% of total shareholder value of the entire Company. Furthermore, unlike my educated guesses on what the value of Europe was at that time, the Board would be analyzing the situation with full knowledge of the situation in Europe and its inherent risks to operate; while we, the owners of the Company, were kept completely in the dark or without a say of what to do about the deteriorating economics of the European operations that have ensued over the past 12 months.

We don’t know if a sale could have been consummated in this value range or at all; just as we don’t know if it was ever seriously considered by the Board. We have recently heard from what we believe to be a credible source that, within the last year, Mr. Benson was approached by a credible purchaser as to whether Mr. Benson would consider selling Europe. It is our understanding that Mr. Benson rejected the proposal outright; we can only hope that he discussed it in detail with the Board and that the Board gave that possibility full consideration. What we do know is, post the recently announced European reorganization, which will drastically cut back operations, we can only conclude, and the data presented

supports, that considerable value has been wasted. This is clearly reflected in the current stock price, which today closed at a low last seen in November 2004.

The real questions for now and going forward are what actions (not words) will be immediately implemented by this Board to stabilize the Company and its stock price? And, what will the Board do to get the stock to reflect what we believe to be its fair value? It seems obvious to us, and from our market research, and we believe if asked, many other significant shareholders would agree, that running the Company status quo will only further deteriorate shareholder value and perhaps permanently destroy the chance to sell the European assets.

We strongly believe that Mr. Benson has misjudged, and continues to misjudge, the malaise in Europe. We cannot understand how the Board continues to listen to him given the destruction in shareholder value that has occurred over the past year. In light of recent disclosures regarding Europe, it is inconceivable to us that management and the Board ignored basic business principals which clearly dictate that operating two distinct businesses, geographically separated by the Atlantic Ocean, has significant operational risks; and as we now know, these risks included ‘‘accounting problems’’ in Spain. Furthermore, Mr. Benson’s initial and continuing handling of the situation in Europe clearly demonstrated a fundamental misunderstanding of the depth of the (European) market’s issues. Given the recent actions announced by the Company, which came as a result of the yet to be published, and presumably very expensive, Boston Consulting Group report, to drastically cut operations in Europe, implies to me that Europe, despite Mr. Benson’s constantly unsupported assertions to the contrary, is not now and has never been strategic to Sunterra!

Accordingly, as the Company’s largest shareholder group, we demand that the Board immediately hire an investment banker to immediately sell the European operations before more value is destroyed and to assess all strategic alternatives including, but not limited to, holding and growing the North American business, or after getting operating expenses in line, to sell the Company. It is our belief that there are more than one potential owner/manager buyers or other strategic players that would be interested in a transaction involving Europe. And, in our view, any value derived by having the European assets as a ‘‘strategic selling tool’’ for North American operations can be accomplished by structuring the sale to include a point sharing system. We further demand that the Company immediately implement a stock repurchase program, utilizing borrowings, in light of the current stock price, and that the proceeds of a sale of the European operations go toward the stock repurchase program. We further demand that overall general and administrative expenses be immediately cut across the board getting such operating expenses in line with Sunterra’s competitors within the next several quarters.

If there are any lingering doubts at the Board level that these actions are immediately required, or whether the vast majority of Sunterra’s shareholders would be supportive of such actions, then I suggest you canvass the Company’s owners on the subject. I am all for shareholder input! We remain available to discuss these issues with you, but expect the Board to take immediate action on them.

In the meantime, we reserve the right to make any other demands or take any other actions in our power to ensure that no further value destruction takes place, and that the owners of the Company are able to realize what we continue to view as the inherent value of the stock.

CD Capital Management, LLC

/s/ John D. Ziegelman
By: ZP II LP, its Managing Member
By: C3 Management Inc., its General Partner
By: John D. Ziegelman, President

Sunterra Corporation
Value Destruction/Creation Analysis
Measurement Period: Latest 12 Months ending 5/18/06


Form 8-K Disclosure Date	Subject of 8-K	(1) Last Reported Shares Outstanding		(2) SNRR Stock Price 1 Day Prior Form 8-K Date		(2) SNRR Stock Price 2 days after Form 8-K Date		Value in $ Created/ Destroyed			As a Percent of Total Market Value			(2) As a percent, change in Russell 2000 Index
6/27/2005	Appointment of David Lucas		19,440,819	$	15.51	$	16.23	$	13,997,389.68			4.64	%		2.28	%
7/11/2005	European Cost Reductions, Revised Guidance & Impairment		19,440,819	$	16.67	$	15.00	$	(32,466,167.73	)		-10.02	%		0.83	%
7/14/2005	Poipu Acquisition		19,440,819	$	15.00	$	14.67	$	(6,415,470.27	)		-2.20	%		-1.36	%
7/28/2005	Amended Credit Facility w/ Merrill		19,440,819	$	14.39	$	14.25	$	(2,721,714.66	)		-0.97	%		1.17	%
8/9/2005	Earnings for period ending 6/30/05		19,440,632	$	13.85	$	14.00	$	2,916,094.80			1.08	%		1.03	%
10/13/2005	Extended CEO's Employment Agrmt		19,440,632	$	12.98	$	13.06	$	1,555,250.56			0.62	%		1.90	%
11/3/2005	Sold $35 million of consumer receivables		19,440,632	$	12.00	$	11.75	$	(4,860,158.00	)		-2.08	%		0.64	%
12/6/2005	Acquisition of Misiones del Cabo		19,440,632	$	11.60	$	12.38	$	15,163,692.96			6.72	%		-0.20	%
12/13/2005	Earnings for period ending 9/30/05		19,472,534	$	13.24	$	13.53	$	5,647,034.86			2.19	%		-0.70	%
1/17/2006	Record Date of Annual Meeting		19,472,534	$	13.75	$	13.69	$	(1,168,352.04	)		-0.44	%		0.92	%
2/14/2006	Earnings for period ending 12/31/05		19,719,896	$	13.40	$	14.48	$	21,297,487.68			8.06	%		3.01	%
3/21/2006 4/11/2006, 8-K/A	Dismissed Auditor Auditor and GT Allegation		19,719,896	$	14.32	$	13.19	$	(22,283,482.48	)		-7.89	%		0.52	%
4/27/2006	Terminated David Harris		19,719,896	$	12.70	$	13.34	$	12,620,733.44			5.04	%		-0.54	%
5/11/2006	NASDAQ Filing Requirements not met		19,719,896	$	14.00	$	12.65	$	(26,621,859.60	)		-9.64	%		-4.94	%
Total Value Created/(Destroyed)								$	(23,339,520.80	)
Total Value Created/(Destroyed) Excluding Earnings Announcements								$	(53,200,138.14	)
Cumulative Change in Market Value 5/19/05 — 5/18/06								$	(80,350,801.90	)		-28.19	%		17.69	%
(1) per the Company's Form 10-Q/10-K Filings
(2) As reported by Bloomberg LP

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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH REPORTING
PERSON
WITH

7. SOLE VOTING POWER
537,772 (see Item 5)

8. SHARED VOTING POWER
461,434 (see Item 5)

9. SOLE DISPOSITIVE POWER
999,206 (see Item 5)

10. SHARED DISPOSITIVE POWER
-0- (see Item 5)